The European Central Bank on Thursday left its main interest rate unchanged at a seven-year high of 4.25 per cent after inflation concerns outweighed fears the eurozone could plunge into recession.

The ECB, mirroring an earlier decision by the Bank of the England to keep rates at 5.0 per cent, had been expected to leave borrowing costs on hold after comments by policymakers last week highlighted renewed alarm about inflation trends. Although eurozone growth contracted in the second quarter, the ECB has seen labour cost growth accelerating and adding to price pressures.

Eurozone headline inflation has been driven sharply higher by soaring energy costs this year but declined slightly to 3.8 per cent in August, from July's record 4 per cent. The ECB aims to keep inflation "below but close" to 2 per cent.

Continued at Financial Times

The Bank of England's Monetary Policy Committee voted on Thursday to hold interest rates steady at 5.0 per cent.

The move to keep rates on hold for the fifth month in a row had been widely expected, with policy-makers squeezed between rising inflation that is expected to peak later this autumn, and signs that the economy and the outlook for jobs are weakening.

However, gilt markets are pricing in the probability of a rate cut by the end of the year, a move some analysts believe is premature.

The European Central Bank later on Thursday also decided to keep rates at a seven-year high of 4.25 per cent .

Minutes of the MPC's last monthly meeting in August showed that members discussed the merits both of raising and cutting interest rates, one aimed at countering inflationary expectations and the other at staving off a more severe economic downturn.

Continued at Financial Times